With solutions like FedNow and RTP growing in popularity across the industry, faster and instant payments are critical for community banks to remain competitive. Many legacy cores offer varying flavors of faster payments solutions, but another option is a fintech solution.

Nick Denning
Nick Denning

“As with any service or capability, it’s important for community banks to have choice and to target best-in-class solutions,” says Nick Denning, senior vice president of payments industry relations for ICBA Payments. “It’s important for banks to be able to evaluate solutions, assess which one(s) best meet their needs and implement them in a way that optimizes competitiveness, experience and profitability.”

Benefits of working with a fintech

While there are no one-size-fits-all faster or instant payments solution providers, most fintech providers combine cutting-edge technology with personalized service that make them a good choice for some community banks.

“I think it can be a much more back-and-forth relationship [between a fintech and community bank] versus legacy core providers that may have many, many layers to go through to reach the different people that do different things,” says Scott Anchin, vice president, senior operational risk and payments policy for ICBA.

“Along with that, smaller size often means better customer service and the ability [for community banks] to have a bigger voice as a customer in the overall direction of the project.”

There’s another upside, says Abhishek Veeraghanta, founder and CEO of Pidgin, a fintech that builds its products on modern, cloud-native web technologies.

“[The technology] lends itself to being more forward-facing and future-proof because we’re not trying to stack years and years of legacy code,” Veeraghanta points out. “It really boils down to how much newer our technology is and our ability to be nimble and agile in delivering that technology.”

Vendor due diligence is critical

However, working with a fintech for faster and instant payments is not without risks.

The number of fintech brands continues to grow, making the landscape confusing at best. That’s one of the reasons why it’s important that community banks do their homework.

“If you are looking for a provider to help you get in the [faster and] instant payments game, look for a fintech led by a team of payments professionals who understand banking,” advises Melissa Kopp, executive director of client experience for Neural Payments. “Make sure they can get you the integration you need and that the resulting experience represents your brand. Your reputation with your customers is gold, so make sure that the fintech you partner with holds to that standard.”

Questions to ask when evaluating a fintech

It’s up to you to conduct your due diligence just as you would with any third-party provider. 

When considering partnering with a fintech for faster and instant payments, be sure to ask yourself these questions:

  • How do we know the fintech will still be in business two or three years down the road?

  • Does the fintech we’re considering have the same or a similar risk appetite as our bank?

  • What is our contingency plan if the fintech decides to close its doors?

When considering working with a fintech, it helps to have a strong vendor management program in place. Suppose your core is currently providing most of your services. In that case, you may need to develop a robust vendor management program or establish new processes to ensure you’re monitoring what the fintech is doing and keep the feedback loops running.

Implementing payments solutions

The process of working with a fintech on faster and instant payments varies according to the provider. Kopp says that cloud-based technologies, APIs and seamlessly integrated experiences are reducing what used to be a six- to 12-month lead time to 60 to 90 days.

Veeraghanta adds another perspective: “We like to be high touch … but beyond that, we try to simplify the process because … we understand that the bank’s IT team still has to run a bank, and the bank’s ops team still has to process their existing transaction volume. We create a structured project plan and checklist for banks as far as what they have to do between deciding they want to go live and going live.”

“Instant payments are very much a strategic play right now,” Anchin says. “I think that over time, the use cases will start to emerge and that community banks that have thought strategically about how to implement them and have worked closely with a provider that’s right for them will really benefit them in the long run as some of these use cases bear themselves out.”

More from ICBA

Fintechs that participate in the ThinkTECH Accelerator do a deep dive into community banking needs to ensure that their solutions are exactly what you need. Learn more at icba.org/accelerator